Why is the CPI useful for indexing wages and taxes?
A. It helps protect purchasing power by adjusting for inflationary increases in the cost of living.
B. It tracks only luxury goods to maintain fairness in taxation.
C. It helps lower the nominal interest rate for loans.
D. It ensures that government revenues grow faster than inflation.
Answer (2)
The CPI is useful for indexing wages and taxes because it helps maintain purchasing power amid inflation, prevents bracket creep in taxation, and aids in economic planning. The main option chosen here is A, as it succinctly captures the essence of why CPI is significant for these adjustments. By using the CPI, wages and taxes can be aligned with real economic conditions, ensuring fair financial conditions for individuals.
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The CPI is crucial for indexing wages and taxes as it helps maintain purchasing power by adjusting for inflation, ensuring that income levels keep pace with the increasing cost of living. This adjustment prevents issues like bracket creep in taxes, promoting fair economic conditions. Thus, the CPI serves as an essential tool in aligning wages and taxes with current economic realities. ;
